The Johnson & Johnson's Tylenol Controversies
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BACKGROUND NOTE CONTD...
In 1974, J&J acquired StimTech, a healthcare company selling a unique product - Transcutaneous Electronic Nerve Stimulator (TENS). The product reduced pain by electronic means and was claimed to be effective against headaches, backaches and arthritis. Industry observers expected TENS to become a substitute for analgesics including Tylenol. However, while J&J's marketing made Tylenol the leader of the US analgesics market, TENS failed. StimTech's founders filed a suit against J&J saying that the latter bought the company to suppress TENS' growth as it was seen as a potential competitor to Tylenol. StimTech's founders won the suit and J&J had to pay them US$170 million. |
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In early 1975, Tylenol faced heavy competition from a similar low-priced product called Datril, manufactured by Bristol-Myers. In late 1975, J&J reduced Tylenol's price by one-third and also advertised it aggressively. This increased the revenues of Tylenol's line of products (See Exhibit II) from $50 million to $400 million by 1981 (See Table I). According to the figures for financial year ended 1981-82, Tylenol was the leader with 37% share of the US $1.3 billion analgesics market. (See Table II). Tylenol accounted for about 17-18% of J&J's net earnings and 7.4% of the worldwide revenues for the same period.
Table I
Sales of Tylenol: 1975-83
(in $ million)
|
Year |
Sales |
|
1975 |
50 |
|
1976 |
80 |
|
1977 |
110 |
|
1978 |
150 |
|
1979 |
200 |
|
1980 |
280 |
|
1981 |
400 |
|
1982 |
210 |
|
1983 |
70 |
Source: Strategic Management, John A Pearce and Richard B Robinson
Table II
US Analgesics Market - March 1982
|
Product |
Market Share (%) |
|
Tylenol |
37 |
|
Anacin |
13 |
|
Bayer |
11 |
|
Excedrin |
10 |
|
Bufferin |
9 |
|
Anacin 3 |
3 |
|
Others |
17 |
Source: Strategic Management, John A Pearce and Richard B Robinson
By mid-1980s, J&J had further expanded its presence in a broad range of products in healthcare and other fields. The company's products were grouped under four segments namely consumer, professional, pharmaceuticals, and industrial (See Exhibit III).
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